Call touches 14-day high as banks rush for funds

Lenders borrow Rs 56,000 cr through RBI’s repo facility to meet reporting needs.

Call money rates were back in the double-digit zone after a gap of two weeks as banks borrowed funds ahead of Bhai Dooj tomorrow, when markets will remain closed.

In addition, banks borrowed over Rs 56,000 crore through the two-day repo auctions as against Rs 42,770 crore on Monday. During the first liquidity adjustment facility (LAF) session this morning, 35 banks submitted bids to borrow Rs 27,125 crore, while in the second auction in the afternoon, there were 33 bids for Rs 28,970 crore. In the afternoon session, two banks also parked Rs 10 crore with the central bank through the reverse repo route.

The high demand for funds was evident in the call money market, with their rates hitting 9.75 per cent in early trade. During the day, call rates touched a high of 13.55 per cent and the weighted average was 11.25 per cent, according to the data on the Clearing Corporation of India website. On Monday, the weighted average call rate was 9.34 per cent and rates had ranged between 6 and 10 per cent.

The volumes in the call money market were estimated at Rs 21,890 crore compared with Rs 17,360 crore on Monday.

Amid some liquidity tightness, dealers said, banks borrowed in the market to meet their reserve requirement ahead of the Reporting Friday. Banks have to report their cash balances to the Reserve Bank of India (RBI) every fortnight and usually they try and complete most of their borrowing in the first week itself. Two holidays during the week, including for Diwali yesterday, are adding to the pressure.

“Last fortnight was not the correct indicator of liquidity since banks may have had a surplus because of RBI’s decision to cut the Cash Reserve Ratio (CRR) with retrospective effect. Banks are playing it safe as they always like to have additional money instead of falling short of the requirement,” said a bank chairman.

RBI’s dollar sales in the foreign exchange market are also putting pressure on the rupee as the central bank is trying to check depreciation of the Indian currency against the greenback.

Wednesday’s closing call rate of 13.50 per cent was the highest since October 10, when it had touched 13.75 per cent. The repo borrowings were also the highest since October 15, when banks had raised Rs 55,340 crore from RBI amid tight liquidity conditions in the market.

The weighted average collateralised borrowing and lending obligation (CBLO) rates were also marginally higher at 8.36 per cent compared with Monday’s 8.08 per cent. The volumes, however, stayed around the Rs 24,000-crore level.

Through CBLO, entities such as non-banking finance companies (NBFCs), mutual funds and primary dealers raise short-term money against securities.